JULY 1, 2022

FFTT “Tree Rings”: The 10 Most Interesting Things

We’ve Read Recently
Here are this week’s “Tree Rings”. Have a great weekend! LG

1. “Many banks are slashing risks, and some are refusing to buy or
sell with clients at all if they have to hold the bonds even for a
short while” (Page 2)

2. “Biden to visit Saudi Arabia on July 15-16, Saudi state news

agency reports” (Page 3)

3. US Strategic Petroleum Reserve (SPR) hits nearly 40-year lows

(Page 4)

4. Economic “Cold War” between Russia & the west is turning into a
sovereign balance sheet contest (Page 5)

5. “BOJ weekly purchases of government bonds. Holy moly.” (Page

7)

6. “Russia may buy ‘friendly countries’ currencies to weaken the

ruble” (Page 8)

7. “China’s central bank and the BIS establish a renminbi liquidity

arrangement” (Page 10)

8. “THE FED’S #1 JOB IS TO MAKE THE TREASURY LOOK

SOLVENT” (Page 12)

9. Part-time for Economic Reasons Employment has bottomed and

Luke Gromen, CFA begun rising rapidly (Page 16)
FFTT, LLC
[email protected]
www.FFTT-LLC.com 10. US Commercial Bank y/y gold and precious metals derivatives
Follow us on Twitter: increase. Holy moly. (Page 19)
@LukeGromen
“Many banks are slashing risks, and some are refusing to buy or sell with clients at all if they have to hold the
bonds even for a short while”

Bond traders at banks are slashing risk, trapping some investors – 6/29/22 (via DC)
https://www.bloomberg.com/news/articles/2022-06-29/bond-traders-at-banks-are-slashing-risk-trapping-some-investors

The magnitude of losses across global markets has spooked bond traders at banks.

Many are slashing risk, and some are refusing to buy or sell with clients at all if it means they will have to hold the
bonds even for a short while, according to market participants. The biggest global banks -- including Citigroup Inc.,
Deutsche Bank AG, Goldman Sachs Group Inc. and JPMorgan Chase & Co. -- have been among those cutting back
in parts of the debt markets in Europe and the US, the people said.

The pullback means pockets of the market are grinding to a halt, posing a problem for asset managers seeking to
divest from securities at quick notice to meet redemption requests across credit funds. Earlier this month, investors
pulled money out of European fixed income funds at the fastest pace since March 2020, according to a note
published last week by BofA Global Research analysts. US high-grade bond investors have now yanked cash for 13
consecutive weeks, extending the longest losing streak on record.

“Liquidity has been very poor, and when we need it the most,” David Newman, chief investment officer for global high
yield at Allianz Global Investors, said in an interview. “In some cases, it’s taken us several weeks to exit what should
be very liquid positions. Conversely, we’ve been unable to buy positions that we think offer up opportunity.”

The market stress is revealing itself in so-called axes that banks send out to clients, indicating if they are buyers or
sellers of any bonds. According to people who’ve seen them, the axes show that the size of bonds banks are willing
to buy or sell has shrunk in recent months and, in some cases, has been set at zero. That means the traders are only
offering an indication of what could be achieved in the market if a buyer or a seller could be found.

Tree Ring: As we have been highlighting, the Fed’s tightening policy and failure to buy “enough” USTs to finance US
deficits are causing increasing credit market dysfunction. If the Fed continues tightening into this, they are risking driving
equity and bond market crashes, along with a US and global economic crisis. The bond market dysfunction also appears
to be worsening in UST markets:

5y UST auction prices with huge tail as foreign demand tumbles – 6/27/22
Welcome To QT: Terrible 5Y Auction Prices With Huge Tail As Foreign Demand Tumbles | ZeroHedge

Ugly, tailing 7y UST auction, but it could have been worse – 6/28/22
Ugly, Tailing 7Y Auction, But It Could Have Been Worse | ZeroHedge

Credit market dysfunction early on in QT are a confirmation of our long-held view that the Fed is no longer operating a
“dial” but rather a “switch” with just two settings – “USA economy on” and “USA economy off”. The fact that tightening is
creating this much credit market dysfunction so quickly is a sign the switch is now firmly in the “USA economy off”
position, which we continue to believe will likely force the Fed to pause hikes by no later than the end of August.

If/when the Fed does pause, we believe gold, BTC, commodities (esp. energy and ag) and cyclical equity markets broadly
will outperform…however, until the Fed pivots, strains will likely continue to build in the financial markets and the real
economy, and the only assets that will likely do well are the USD, short-dated USTs, maybe long-dated USTs for a brief
trade, and maybe gold.

We continue to build cash and hold our core holdings in anticipation of the Fed’s pivot…but we are “shifting our finger to
the trigger”, readying to deploy our cash in anticipation of either an imminent Fed pivot or a gap down in risk that we can
deploy our cash into to get attractive assets on sale. Let’s watch.

2 • FFTT TREE RINGS JULY 1, 2022

“Biden to visit Saudi Arabia on July 15-16, Saudi state news agency reports”

Biden to visit Saudi Arabia on July 15-16, Saudi state news agency reports – 6/14/22
https://www.reuters.com/world/biden-visit-saudi-arabia-july-15-16-state-media-2022-06-14/

Tree Ring: We have long thought the Fed would be forced to pivot into still-elevated energy prices. To-date, energy
prices have not fallen much, and the Fed has continued to get more hawkish.

As such, it seems increasingly likely that given the domestic politics (i.e., Biden and the Democrats are getting lambasted
about energy inflation just months ahead of a mid-term election) and the geopolitics (i.e., Russia) involved, in our view, the
Fed likely cannot pivot on its tightening policy until energy prices have fallen off the highs by a notable amount.

Given the preceding Tree Ring point about increasingly dysfunctional credit markets (which will likely quickly make a
rapidly-weakening economy even worse, and at some point, risks touching off equity and/or housing market crashes), the
Fed’s operating room is getting increasingly narrow. In plain English – the Fed needs oil prices down, ASAP.

Enter Biden’s upcoming visit to Saudi Arabia on July 15-16. While many are skeptical about Biden’s ability to secure a
Saudi promise to pump more oil (indeed, we ourselves were skeptical about this up until just recently), we have recently
heard credible rumblings that Biden is likely to return from his mid-July trip to Saudi Arabia with a promise from the Saudis
to pump more oil.

Given US media and financial media (and an increasingly-desperate Fed need for oil prices to come down so they can
pivot to prevent dysfunctional credit markets from turning non-functional, driving a Fed credibility-hurting economic crash),
we suspect that if Biden is able to secure a Saudi promise to pump more oil, it will likely be trumpeted across US
mainstream and financial media like the greatest piece of diplomacy since the fall of the Berlin Wall.

In turn, given positioning, we would not be surprised to see oil prices sell-off on headlines of Biden securing a Saudi
promise to pump more oil. This in turn could give the Fed the operating room to declare victory against inflation, and
quickly pivot on interest rates to try to prevent dysfunctional credit markets from becoming non-functioning.

There’s just one problem – it has long been unclear to us

(and others) that Saudi (and OPEC+ more broadly) can
actually pump more oil even if they wanted to.

Doubts about this were raised again this week on a “hot mic”
conversation between Presidents Macron and Biden at the
G-7, as noted by the always-brilliant Paul Sankey (right):

For an Administration that has raised a core US policy

stance of recent decades of “managing to optics instead of
to outcomes” to an art form, it would not surprise us to see
things play out as follows:

Biden returns from Saudi with a Saudi promise to pump more oil; oil sells off sharply, giving the Fed the leeway to pause
its tightening policy (“become data dependent”?). However, ensuing months show that Saudi and OPEC+ production
does not rise much at all, quickly sending oil prices back to prior highs within a month or two.

We continue to see energy as a secular holding given Peak Cheap Energy, but given positioning and our belief that Biden
is likely to return from Saudi with a promise to pump more oil, we would advise short-term energy traders to be cognizant
of the headline risk surrounding Biden’s meeting with the Saudis in two weeks. Let’s watch.

FFTT TREE RINGS JULY 1, 2022 • 3

US Strategic Petroleum Reserve (SPR) hits nearly 40-year lows

Tree Ring: Part of the reason that we think any decline in oil prices that results from Biden returning from Saudi Arabia
with a Saudi promise to pump more oil will likely be “transitory” (at best) is what is going on with the US SPR, which
recently hit nearly 40-year lows after plummeting in recent weeks:

Source: Bloomberg

As US oil reserves fall sharply, we thought the

chart at right of historical moves of US gold
reserves might be instructive.

In plain English: Pretty much the moment US

gold reserves stopped going down, USD gold
prices went up, a lot, and quickly.

As such, while we do think there is headline

risk to oil prices around Biden’s visit to Saudi
in two weeks, that does not change our more
structural bullish views around oil tied to Peak
Cheap Energy, if for no other reason than the
Biden Administration is likely going to have to
“cover its energy short” (refill the SPR.)

Let’s watch.

4 • FFTT TREE RINGS JULY 1, 2022

Economic “Cold War” between Russia & the west is turning into a sovereign balance sheet contest

Tree Ring: With “Top Gun: Maverick” doing so well in movie theaters, as we read the two articles below in two of the
biggest western financial media newspapers of record (the WSJ and the FT) regarding what is now being openly talked
about as an economic “Cold War” between Russia and the west, we could not help but think of the conversation from the
following scene in the original “Top Gun” movie:

[At the carrier, in the midst of the MiG battle, Stinger asks the status of the reinforcement planes]

Stinger: What about Wilder and Simpkin?

Officer: Both catapults are broken sir, we cannot launch any aircraft yet.
Stinger: How long?
Officer: It’ll take ten minutes.
Stinger: Bullsh*t ten minutes! This thing will be over in TWO minutes…get on it!

In plain English, the tit-for-tat economic “Cold War” between Russia and the west is quickly turning into a sovereign
balance sheet contest between the Russians and the west. There are just two problems for the west with this strategy:

1. The west’s sovereign balance sheet sucks, while Russia’s sovereign balance sheet is relatively pristine.

2. China, India, and their 35% of global population (and critical place in western supply chains) are siding with
Russia out of energy necessity/realpolitik.

Here’s where the “Top Gun” metaphor above comes into play: An inability for western policymakers to objectively assess
their situation has led to a bizarre circumstance where western policymakers are currently comforting themselves by
saying that Russia’s energy assets will collapse in three years (below), but these policymakers are ignoring:

a) that western sovereign debt loads will begin to collapse in three MONTHS once cold weather begins to arrive in
Europe (if there is insufficient Russian oil and gas to prevent Europe from “freezing in the dark”), and;

b) US and EU credit markets are on pace to break within WEEKS on current pace (unless the Fed pauses rate
hikes, and then before long, resumes QE, likely sending oil prices back up for Putin and Russia):

The Europeans have several months before winter to prepare for the coming Russian squeeze. But even if Moscow’s
pressure tactics do work in the short term, over the long term Putin is destroying one of the main pillars of Russian
power. Europe has now learnt a bitter lesson about the dangers of energy-dependence on Russia and is determined
never to be as vulnerable again.

One senior German official says: “Before the war, Russia was looking at 30 more years of guaranteed oil and gas
revenues. Now they are looking at three.” Even in the short term, cutting off Europe’s gas exports is a dangerous
game for Russia. Roughly €1bn a day is still flowing into Russia’s coffers, mainly from Europe.

If Putin sacrifices those revenues, his ability to wage war would rapidly diminish. Russia can find alternative markets
for its oil relatively easily — witness the eagerness with which India and China are increasing imports of its
discounted oil. But its gas is exported by pipeline and the major pipelines head towards Europe. Constructing new
ones to China will take years, so Russia could soon be faced with a stranded asset.

Why the US could be the real winner in the energy wars – 6/27/22
https://www.ft.com/content/ceb6fa1f-27a8-4674-a19b-c17a48333eb9

FFTT TREE RINGS JULY 1, 2022 • 5

The view “Putin will lose in years” while ignoring the fact that
western sovereign balance sheets are likely to cause a western
economic crisis within weeks or months can be seen here too:

Gas prices test American appetite for new Cold War with
Russia – 6/29/22
Gas Prices Test American Appetite for New Cold War With Russia -
WSJ

In addition, as we noted above, western policymakers and

mainstream financial media continue to seemingly ignore the
reality that China and India are siding with Russia out of energy
realpolitik.

As such, as we have been highlighting for months, the epicenter

of the economic “Cold War” thus far have been the US’ two
closest allies, the EU and Japan, who are both
short energy and effectively agreeing to run the
post-WW1 Weimar Germany economic model by
cutting their energy supplies and then printing
money to try to paper over the energy shortfalls.

The WSJ’s Daily Shot column highlighted a

couple charts showing the outcome of Germany’s
decision to run the “post-WW1 Weimar Germany
economic model”, with German manufacturing
indices and GDP plummeting (first chart at right),
and German inflation soaring (second chart at
right.)

The EU’s and Japan’s ongoing willingness to

commit economic suicide, effectively at the US’
behest, has been nominally good for the USD as
measured by the DXY index and will likely
continue to be.

The question remains in our mind “How bad

does it have to get in the EU and Japan for the
EU and Japan to follow China and India in
practicing ‘energy realpolitik’ and follow their
example by being willing to buy Russian energy
in either EUR or JPY?”

We think that day may be coming sooner than

consensus believes.

Let’s watch

6 • FFTT TREE RINGS JULY 1, 2022

“BOJ weekly purchases of government bonds. Holy moly.”

Tree Ring: “Holy moly” was the reaction of

Schroders’ Head of Strategic Research
Unit, Duncan Lamont, to the spike in Bank
of Japan’s weekly purchases of
government bonds in
recent weeks (right, via
RW):

This chart effectively

tells us that the amount
of JPY creation needed
to keep a lid on JGB
yields exploded higher in
the last couple weeks.

A corollary to this chart

is that the higher the
bars go, the more
downside pressure there
will be on the JPY, all
else equal.

This in turn implies

greater upward pressure
on Japanese energy
costs and Japanese
inflation, which in turn implies greater upward pressure on JGB yields…wash/rinse/repeat until either the JPY collapses
(Japanese hyperinflation), the BOJ stands aside and lets JGB yields rise to market yields (Japanese government
bankruptcy & likely hyperinflation), or the Japanese government finds an energy supplier willing to sell energy to it in JPY
instead of USDs.

As it relates to the prior Tree Ring point, the chart above suggests that Japan’s running of the post-WW1 Weimar
Germany economic model (cut your energy supplies, then print money to paper over it) is showing increasing strains. An
energy-driven JPY collapse or JGB market collapse (the two options above) would amount to massive financial crises that
would likely dwarf the collapse of Lehman Brothers in terms of the collateral damage globally.

This then raises the question – will western and particularly Japanese policymakers be dogmatic enough to allow an
energy crisis to drive the collapse of Japan (either via a JPY collapse or a JGB collapse), or will Japanese policymakers at
some point either ask the Fed to implement QE on JGB’s to help it (Fed prints USDs to buy JGBs, would weaken USD
significantly), or will Japan break ranks with their US and EU counterparts and look to find an energy supplier willing to sell
energy to it in JPY instead of USD?

At this point, Japan appears willing to drive its economy, currency, and/or bond market off the cliff, effectively at the
behest of the US…at least for now. This then raises another critical point regarding the prior Tree Ring point – Russia
may have a problem in a few YEARS, but the chart above suggests Japan and by extension the west and the global
monetary system have a problem TODAY, or if not today, VERY SOON.

Let’s watch.

FFTT TREE RINGS JULY 1, 2022 • 7

“Russia may buy ‘friendly countries’ currencies to weaken the ruble”

Russia may buy “friendly countries” currencies to weaken the ruble, says finance minister – 6/29/22 (via MH)
https://www.reuters.com/markets/currencies/russia-could-cut-state-spending-fx-interventions-says-finance-minister-2022-06-29/

Tree Ring: In light of the prior two Tree Ring points and a point we have been making in prior Tree Rings (see 6/17/22, #8
for example), the headline above was in our view a potentially monumental statement that was largely missed and
certainly greatly underappreciated by most western market observers. Here’s why:

Remember a point we have repeatedly been making since the earliest days of Russia’s invasion of Ukraine – Russia’s
currency is only nominally the RUB. Functionally, Russia’s currency is energy. We saw this play out in spades when
Russia effectively backed the RUB with gas by demanding RUB for gas from “unfriendly” countries, sending the RUB
significantly higher against the USD, contrary to most investors’ expectations.

With this context, let us revisit the Russian foreign minister comment above: To our eyes, the Russian foreign minister’s
point amounted to floating out the idea that Russia would effectively sell energy to “friendly countries” in their local
currencies, which as we just noted (and have repeatedly been noting), would all but end the rapidly-worsening energy and
currency and/or sovereign bond crises in energy-importing creditor nations/regions like Japan or the EU.

This is because there is effectively no difference between Russia selling RUB to buy JPY and Russia selling oil
and gas in JPY. It is hard to overstate the importance of this point, and therefore the potential geopolitical and
FX importance of the Russian finance minister’s statement.

Russia appears to be attempting to use energy leverage in the context of looming energy-driven Japanese and EU
currency and/or sovereign debt crises to completely restructure the post-WW2 global order and drive a wedge between
the US and its long-time EU and Japanese allies.

What happens next? As we wrote in the 6/17/22 edition of Tree Rings in point #8:

Of course, were the US to institute an oil export ban, the rise in international energy costs would likely send Japan
further into a current account deficit, putting further upward pressure on JGB yields, further strain on the BOJ’s
YCC yield cap, and therefore further downward pressure on the JPY. So, is the BOJ trapped? Will they abandon
YCC?

We think investors that think the BOJ is trapped are potentially not being creative enough. First, as we noted
above, if the US wants to help its ally, the Fed could print USDs and buy JGB’s, weakening the USD and helping
the BOJ cap JGB yields. This move was highlighted in Bernanke in 2002 as a deflation-fighting step and would
likely be very good for gold, commodity prices, BTC, and strengthen the JPY v. the USD (likely sending DXY
down.)

However, if the Fed does not print USDs to buy JGBs, then if faced with the national security risk of the
bankruptcy of Japan and the potential hyperinflation of the JPY that would ensue, investors should not be
surprised if Japan makes two phone calls:

1. The first call would be to the US government and/or the Fed, saying that if Powell does not start buying
JGBs, Japan is going to call Putin and do a deal to buy oil and gas in JPY.

2. If Powell does not respond appropriately, then Japan’s second call would be to Putin, asking if Japan can
pay for oil and gas in JPY that Russia can then use to buy high-quality Japanese goods.

8 • FFTT TREE RINGS JULY 1, 2022

 US policymakers thinking they hold all the cards are underappreciating Japan’s leverage as a major global
economic powerhouse and producer of quality goods.

If US policymakers overplay their hand (like they did with Russia over the last four months), we may see a
massive re-ordering of the postwar order and effectively a major change to the structure of the post-71 structure
of USD reserve status begin in the second half of this year, driven by national security energy imperatives,
because energy is the real value and the master resource, not the USD.

To clarify, that change in USD reserve status structure would be Japan joining China in buying energy in their own
currency instead of USDs.

The dynamics described above are positive for the USD, gold, and energy…with the understanding that with the
USD at levels already causing massive systemic stress in all global sovereign bond markets (including the UST
market), USD longs need to be careful of the headline risk of the Fed buying JGB’s (would likely drive a gap down
in USD, gap up in JPY, and gap ups in gold, BTC, energy, and risk assets more broadly.)

Things appear to be moving fast now. Less than two weeks after we wrote the above, the Russian foreign minister to our
eyes effectively put out an offer to sell energy in the local currencies of “friendly countries” (again, with energy as Russia’s
functional currency, there is functionally no difference between Russia selling RUB to buy “friendly country currencies”
and Russia selling energy in “friendly country currencies.”)

To our eyes, the looming energy crisis may force one of two “black swan” outcomes in 2H22E that consensus is not even
considering possible yet:

1. The Fed begins “JGB QE” and/or “EU QE” to help Japan and the EU manage their rapidly-worsening
currency/sovereign debt crises (bad for USD, great for global risk assets, gold, BTC, etc.), or;

2. Japan and/or the EU or others being forced by energy realpolitik a la both China and India to either seek their own
terms with Russia or otherwise abandon the US in a move that would amount to a massive shift in the post-WW2
global order.

Let’s watch.

FFTT TREE RINGS JULY 1, 2022 • 9

“China’s central bank and the BIS establish a renminbi liquidity arrangement”

China’s central bank, BIS set up a renminbi liquidity arrangement – 6/25/22

https://www.reuters.com/markets/currencies/chinas-central-bank-bis-set-up-renminbi-liquidity-arrangement-2022-06-25/

China's central bank said on Saturday it had signed an agreement with the Bank for International Settlements to
establish a Renminbi Liquidity Arrangement (RMBLA) that will provide support to participating central banks in times
of market fluctuations.

Each participant will contribute a minimum of 15 billion yuan ($2.2 billion) or the U.S. dollar equivalent, it said. The
BIS said in a separate statement that the funds could be contributed either in yuan or U.S. dollars, and that they
would be placed with the BIS, creating a reserve pool.

Tree Ring: Building on the seeming Russian offer to effectively sell energy in the local currencies of “friendly countries”,
this week the PBOC and the BIS (Central Bankers’ Central Bank) signed an agreement to set up a RMB liquidity
arrangement.

Naysayers quickly dismissed the liquidity arrangement as both small and symbolic more than anything (we agree), and
that it was still effectively just a USD liquidity arrangement (the fact that either RMB or USD could be contributed as
capital would seem to refute that point).

While we acknowledge those objections, we continue to find that most western investors are missing the forest for the
trees on this initiative and others like it (that tend to center around commodities):

1. A disproportionate % of the world’s trade imbalances center around commodities, which are still primarily priced in
USDs.

2. As the marginal ton of commodities shifts to being priced in non-USDs (a development that the RMB liquidity lines
above will likely help facilitate on the margin), it does two things:

a. Increases commodity-importing creditor nations’ sovereignty over their domestic economies and allows
them to use commodities to manage their balance of payments (“we are short USDs but long RMB from
our trade with China; let’s use RMB to buy commodities this month.”)

b. It structurally reduces demand for USTs as FX reserves over time, which over time will force the Fed to
expand its balance sheet ever-more in order to finance ever-rising structural US government deficits
(weakening the USD when the Fed buys “enough” USTs, and strengthening the USD when the Fed does
NOT buy “enough” USTs.)

Interestingly, this week, we saw signs of how the RMB liquidity lines and/or multi-currency commodity pricing might be
used to help nations manage their balance of payments in this headline:

India’s top cement maker paying for Russian coal using Chinese yuan – 6/29/22
https://www.reuters.com/business/exclusive-indias-top-cement-maker-paying-russian-coal-chinese-yuan-2022-06-29/

Is any of the above a huge deal in its own right? Not in our view, no. However, will other nations that are experiencing
energy- and commodity-driven balance of payments problems (i.e., Japan and the EU, as well as many others, as noted
earlier) begin to shift purchases of commodities on the margin to other currencies? To us, it strains credulity that this
trend will not continue to happen and build momentum.

10 • FFTT TREE RINGS JULY 1, 2022

Critically, the moves to price commodities in non-USDs shifts economic power over time from the producer of USDs (the
US government) to the producers of commodities. Interestingly, this last point has been made multiple times in recent
months by a diverse set of people:

The world economy is experiencing a global tectonic shift, with commodities becoming more valuable than money, the head of
Russia’s state energy giant Gazprom, Alexey Miller, said on Thursday, adding that from now on it is a case of “our product, our
rules.”

“The game of nominal value of money is over, as this system does not allow to control the supply of resources,” Miller said
during a panel discussion at the St Petersburg International Economic Forum on Thursday. “Our product, our rules. We don’t
play by the rules we didn’t create,” he added.

Gazprom: Russian gas boss says ‘our product, our rules’ in supply row – 6/16/22
Gazprom: Russian gas boss says 'our product, our rules' in supply row - BBC News

“Our product, our rules”: Russia’s Gazprom – 6/16/22

‘Our product, our rules’ – Russia's Gazprom — RT Business News

Instead of a Volcker moment, we got a Putin moment and we basically have war and out of this war, something will also
emerge. Out of this, I think this “Bretton Woods III” that I started to kind of develop and run with, is a world where we are,
again, going to go back to commodity-backed money – where gold, once again, is going to play a big role. And not just gold,
but I think all forms of commodities.

-Zoltan Pozsar, Credit Suisse, 4/7/22

Is this partially what Powell was referring to when he said this two weeks ago?

Looking forward, rapid changes are taking place in the global monetary system that may affect the international role of the
dollar in the future.

-Fed Chairman Jerome Powell, 6/17/22

Hard to know for sure what Powell meant, but for us, the most actionable outcomes of the above in the near term is this:

1. The global commodity trade continues to shift away from USDs on the margin; this plus the resultant reduction in
global UST demand that it drives will all else equal drive the USD up and global economies and risk assets down
for as long as the Fed is not buying “enough” USTs, and then drive the USD down and global economies up and
risk assets up once the Fed is forced by a big enough economic crisis to resume buying “enough” USTs.

2. The dynamics in #1 above combined with the aforementioned energy-driven balance of payments problems in
Japan and the EU are likely quickly going to precipitate a severe crisis – the potential moves by Russia, China,
and the BIS above amount to efforts to try to reduce the harm such a crisis will do to their economies.

Let’s watch.

FFTT TREE RINGS JULY 1, 2022 • 11

“THE FED’S #1 JOB IS TO MAKE THE TREASURY LOOK SOLVENT”

US paying more to borrow as Fed raises

rates, inflation stays elevated – 6/25/22
U.S. Paying More to Borrow as Fed Raises Rates,
Inflation Stays Elevated - WSJ

Tree Ring: Last week, Michael Taylor tweeted the

WSJ article above with the message at right:

THE FED’S #1 JOB IS TO MAKE THE

TREASURY LOOK SOLVENT.

This tweet caught our attention for two reasons:

1. The WSJ is beginning to openly recognize

the US fiscal “doom loop”/Balance of
Payments problem we have long been
writing about.

2. A (quiet) legendary investor like Mike Taylor

is saying the quiet part out loud.

A little “inside baseball” context: One of our best relationships on Wall Street has told us that while he is not necessarily a
household name, Mike Taylor quietly put up an extraordinary performance record as a portfolio manager at one of the
biggest hedge funds in the world. There are many skills that contribute to putting up an extraordinary track record as a
hedge fund manager, but one key one is this: Seeing important trends early…but not too early.

As such, the fact that Taylor is now openly “saying the quiet part out loud” is a potentially important signpost: He is likely
early…but not too early.

Interestingly, the above was not the only article in the WSJ this week discussing the worsening US fiscal problem:

Rising interest rates will crush the Federal Budget – 6/29/22

Rising Interest Rates Will Crush the Federal Budget - WSJ

Total federal gross interest cost over the 12 months ending on May 31 was $666 billion. If we include the impending
extra interest on Treasury bills and the maturing notes, that figure rises to $863 billion. This is a staggering cost.
National military spending was $746 billion over the past 12 months; Medicare spending was $700 billion.

With the federal government in perpetual deficit, where will the Treasury find money to make extra interest
payments? New taxes? Lower spending? Fat chance. In all likelihood, it will have to borrow to pay interest.

Who will buy Treasurys? Under quantitative tightening, the Fed isn’t planning to reduce its holdings of Treasury bills,
only of longer-term notes and bonds. Buyers—especially of long bonds—face an uncertain inflation outlook. The high
pace of the Fed’s reduction of its Treasury holdings will require a fast-paced refinancing program. It will be
challenging and costly to find buyers to replace the Fed.

The revenue side doesn’t look much better. The sharp selloff in equity markets will severely depress capital-gains tax
revenue, which averages more than 10% of federal individual income-tax revenue. Such revenue is now
reversing from a historic peak in 2021. The shortfall in 2022 could be as much as $250 billion. Almost inevitably, this
revenue loss will have to be made up with more federal borrowing.

12 • FFTT TREE RINGS JULY 1, 2022

The preceding two WSJ articles highlight the mechanics of something western policymakers and investor consensus are
missing that we highlighted multiple times in recent months (and years): The red line rose and the blue line flatlined as the
Fed tightened from 2016-2019, and then blew out in 2020 as the US went into recession. They narrowed in 2021-2022
driven by inflation and a US asset bubble that is now deflating.

US Federal Budget Trends, 2016-2022E, using 2020 and 2021 actuals ($B)
"Total" = Entitlements + Defense + Treasury Spending
Sources: US Treasury, FFTT Assumes this will fall
sharply despite
$5,500
The "Big 3" alone are $1.2T > all-time record Federal tax receipts sharply higher US
funding rates
$5,000
Mid-2018: "Big 3" already 103% of US receipts, despite
$4,500 "best GDP print in years" in 2q18!

$4,000

$3,500
Assumes 2% tax receipt growth
$3,000 despite sharp rise in rates and
global slowdown
$2,500
2016 2017 2018 2019 2020 2021E 2022E

Revenues Total

Western policymakers and investor consensus refuse to understand that given far-higher levels of US debt/GDP and
deficits/GDP than in 2016-20, if the Fed tightens enough to end inflation, the US will have a recession and these lines will
widen, driving credit stresses as the UST supply/demand problem (US Balance of Payments crisis) goes acute – as noted
earlier, we are already seeing these strains, but US policymakers and investor consensus are choosing to ignore it:

US Federal Budget Trends, 2016-2022E, using 2020 and 2021 actuals ($B)
"Total" = Entitlements + Defense + Treasury Spending
Sources: US Treasury, FFTT Assumes this will fall
sharply despite
$5,500
sharply higher US
The "Big 3" alone are $1.2T > all-time record Federal tax receipts funding rates
$5,000

$4,500
Mid-2018: "Big 3" already 103% of US receipts, despite
$4,000 "best GDP print in years" in 2q18!

$3,500
Assumes 2% tax receipt
$3,000 growth despite sharp rise in
rates and global slowdown
$2,500
2016 2017 2018 2019 2020 2021E 2022E

Revenues Total

FFTT TREE RINGS JULY 1, 2022 • 13

The second WSJ article in particular frames up Hirschmann Capital’s bond misperception #1 that Hirschmann (and we)
highlighted earlier this year:

Hirschmann Capital’s Bond Misconceptions, Part 2:

#1: The Fed can halt inflation by hiking interest rates as it did to end the 1970s inflation.

From 1979-81, the Fed hiked the federal funds rate (FFR) by ~1000bps to curtail inflation. In 1979, however, the USG’s debt
to GDP ratio was only 31% of GDP and its budget deficit was only 2% of GDP. Thus, the hike’s impact on the USG’s interest
burden was manageable. By 1983, the budget deficit had increased only four percentage points – to 6% of GDP.

Today, a 300bp FFR hike – a fraction of the Fed’s 1979-81 hike – is easily foreseeable. This would still leave the real FFR
lower than it has been for 98% of the last 67 years. Even some members of the perpetually optimistic Federal Open Market
Committee are projecting a ~300bp FFR by 2024.

Today, however, the USG’s debt to GDP ratio is ~120% and its budget deficit is forecast to be ~7% of GDP this year.
A 300bp hike should increase the budget deficit to ~11% of GDP.** Since 1991, all 18 other governments with deficits
exceeding 11% of GDP and debt to GDP ratios exceeding 110% defaulted within two years. (Source: Rogoff & Reinhart)

Thus, the Fed could soon be trapped: raising rates could trigger default and not raising them could leave inflation unchecked.
Similar dilemmas in other countries have often caused extreme crises (e.g., Argentina, Brazil and Venezuela); the US may
soon join the club.

** A 300bp FFR hike multiplied by the USG’s ~120% debt to GDP ratio suggests the USG’s interest burden would
increase by ~4% of GDP. However, that FFR hike, if sustained, would flow through to USG interest expense over
several years because the USG’s average debt maturity is more than 4 years. On the other hand, the deficit impact of
a FFR hike would almost certainly exceed the USG interest expense increase. That is because higher rates would
likely disrupt financial markets, slow GDP growth, lower tax revenue and increase welfare spending. In sum, a ~4%
deficit increase seems a reasonable estimate of the near-term impact of a 300bp hike.

-Source: Hirschmann Capital Year-End 2021 Letter, January 15, 2022

Hirschmann’s point above gets to the essence of western policymaker and investor consensus misperceptions:
Regardless whether the Fed hikes rates to fight inflation or destroys demand to fight inflation, the US will be put into a
fiscal and debt position from which 100% of countries in that same position since 1991 have defaulted (usually via high
inflation.)

Today, however, the USG’s debt to GDP ratio is ~120% and its budget deficit is forecast to be ~7% of GDP this year. A 300bp
hike should increase the budget deficit to ~11% of GDP. Since 1991, all 18 other governments with deficits exceeding 11% of
GDP and debt to GDP ratios exceeding 110% defaulted within two years.

As such, in our view, THE key decision in markets over the next 2-3 months is likely to be this:

1. Do you think the Fed will burn down the world, including the US economy, UST market, and US mortgage
markets to stop inflation (triggering a US and global debt crisis and possible US and global sovereign government
defaults in the process)?

2. Do you think the Fed will deploy the Argentina playbook, being forced into loosening policy into an inflation spike
by the US debt and deficit position (i.e., the Fed will refuse to put the US into a position where it could default on
USTs, Entitlements, or Defense expenditures)?

We continue to believe the Fed will choose #2 ultimately, and suspect more pain is coming until they get there…pain that
will likely only last a few more weeks at the pace of the last few weeks.

14 • FFTT TREE RINGS JULY 1, 2022

We continue to believe the Fed will choose #2 ultimately for the same reason that Mike Taylor does: “THE FED’S #1 JOB
IS TO MAKE THE TREASURY LOOK SOLVENT.”

What does that mean? As so many US economists and policymakers like to say, “We’ll just be Japan.” As you look at
the chart below, remember the BOJ weekly purchases of JGB chart from earlier:

US Fed Balance Sheet as % of GDP

v. BOJ Balance Sheet as % of GDP (leading 10 yrs)
Sources: FFTT, Fed, BOJ

140%

120%

100%

80%

60%

40%

20%

0%

Fed Balance Sheet BOJ Balance Sheet

In plain English: As the Fed is forced by an energy crisis and a global economic crisis to do “their #1 job” (make Treasury
look solvent), we expect the blue line to continue following the red line as it has for over a decade now.

While timing is key (because until the Fed “does their #1 job”, the USD will likely remain strong and risk assets will likely
remain weak), what is happening in credit markets and what comments like that from legendary pros like Taylor are both
suggesting is that it likely will not be long now until the Fed is forced back into doing their “#1 job” – growing their balance
sheet to finance US government deficits.

Let’s watch.

FFTT TREE RINGS JULY 1, 2022 • 15

Part-time for Economic Reasons Employment has bottomed and begun rising rapidly

Tree Ring: Rising part-time employment for economic reasons (i.e., the number of employees that are only working part-
time because there is not enough demand for them to work full time, blue line) has been a leading indicator of rising
unemployment for the past 20+ years (h/t the always-brilliant Tavi Costa):

16 • FFTT TREE RINGS JULY 1, 2022

And as capital markets have largely closed down to new issuance (see the first Tree Ring point about debt markets), tech
layoffs have risen meaningfully (via LV):

FFTT TREE RINGS JULY 1, 2022 • 17

Here’s where the rubber meets the road: The blue line is Employment part-time for economic reasons inverted; the red
line, US bank prime loan rates (which typically move up and down on the same day that the Fed raises and lowers
interest rates.) Over the past 30 years, once part-time employment begins rising definitively, the Fed has stopped raising
rates.

In plain English: If the pattern of the past 30 years holds, then the Fed is done raising rates, if not already then
after the next hike.

The chart above further reinforces our view that THE key decision in markets over the next 2-3 months is likely to be this:

1. Do you think the Fed will burn down the world, including the US economy, UST market, and US mortgage
markets to stop inflation (triggering a global and US debt crisis and possible western and US government defaults
in the process)?

2. Do you think the Fed will deploy the Argentina playbook, being forced into loosening policy into an inflation spike
by the US debt and deficit position (i.e., the Fed will refuse to put the US into a position where it could default on
USTs, Entitlements, or Defense expenditures)?

We continue to believe the Fed will choose #2 ultimately, and suspect more pain is coming until they get there…pain that
will likely only last a few more weeks at the pace of the last few weeks. Until the Fed yields, the USD will likely continue to
do well, as will short-dated USTs and long-dated USTs for perhaps a little longer (until collapsing tax receipts drive rising
UST issuance and worsening UST dysfunction that will likely lead to rising UST yields in a recession.)

We continue to build cash, hold gold, energy, commodities, industrial equities, and BTC, and we are increasingly
anxiously waiting to deploy our cash stockpile into more of those assets. Let’s watch.

18 • FFTT TREE RINGS JULY 1, 2022

US Commercial Bank y/y gold and precious metals derivatives increase. Holy moly.

Tree Ring: We figured that if the chart of

BOJ weekly purchases of JGB’s that
looked pretty much just like the chart at
right elicited a “Holy moly”, then the chart
at right of y/y change in US bank gold
and precious metals derivatives
deserved its own “Holy moly” response
as well. (Chart via the always-brilliant Larry
Lepard.)

What drove the staggering increase in

US commercial bank gold and precious
metals (PM’s) derivatives?

Apparently, there was a regulatory

change on January 1, 2022 that
reclassified gold derivatives contracts
from being foreign exchange derivatives
(currency derivatives, which we knew
was how they had historically been
classified) to precious metals derivatives:

JPMorgan Chase and Citibank

hold 90% of all gold and other
precious metals derivatives held
by US banks – 6/29/22 (via LL)
Report: JPMorgan Chase and Citibank
Hold 90 Percent of All Gold and Other
Precious Metals Derivatives Held by All
U.S. Banks (wallstreetonparade.com)

Beginning January 1, 2022,

the largest banks are
required to calculate their
derivative exposure amount
for regulatory capital
purposes using the Standardized Approach for Counterparty Credit Risk (SA-CCR). Under SA-CCR gold derivatives
are considered precious metals derivative contracts rather than an exchange rate derivative contract resulting in an
increase in reported precious metals derivative contracts compared to prior quarters….”

Remember that we noted that the BOJ chart of JGB buys effectively suggested that the BOJ was increasingly straining to
keep a lid on JGB yields? A potential interpretation of the chart at right (even allowing for much of the move being driven
by a regulatory reclassification), and especially the fact that it is being driven by JPM and C (effectively the Fed/US
government) is that US policymakers are increasingly straining to keep a lid on gold prices.

Charts like the one above are why we have often said “the amount of paper gold leverage in the system will not matter
until it matters.”

FFTT TREE RINGS JULY 1, 2022 • 19

What could be a catalyst that could force massive amounts of paper gold leverage to begin to “matter”? One possible
way would be if physical gold were to be brought back into the system as a settlement asset for a commodity that the US
and the west more broadly could not live without…say, for example, oil and gas.

Remember that back on March 28, 2022, Russia’s Central Bank announced it would resume buying gold from Russian
banks at a fixed price of 5,000 RUB per gram (there are 31.103 grams per troy ounce of gold):

Russia sets fixed gold price as it restarts official bullion purchases – 3/28/22
Russia sets fixed gold price as it restarts official bullion purchases | Kitco News

Russia's central bank resumed its gold purchases from local banks on Monday, but it set a fixed price on the precious
metal. Starting this week, the Russian central bank will pay a fixed price of 5,000 roubles ($52) per gram between
March 28 and June 30, the bank said on Friday. This is below the current market value of around $68.

Then, just three days later, Putin announced the so-called “ruble-for-gas scheme”:

President Putin’s full remarks at the oil-for-ruble announcement – 3/31/22

https://thesaker.is/president-putins-full-remarks-at-the-oil-for-ruble-announcement/

Today I have signed an Executive Order that establishes the rules for trade in Russian natural gas with so-called
unfriendly states. We offer counterparties from such countries a clear and transparent scheme. To purchase Russian
natural gas, they must open ruble accounts in Russian banks. It is from these accounts that payment will be made for
gas delivered starting tomorrow, from April 1 of this year.

If such payments are not made, we will consider it a failure to fulfill obligations on the part of buyers – with all the
ensuing consequences. No one sells anything to us for free, and we’re not going to do charity either. That is, existing
contracts will be stopped.

I would like to stress once again that in a situation where the financial system of Western countries is used as a
weapon, when companies from these states refuse to fulfill contracts with Russian banks, enterprises,
individuals, when assets in dollars and euros are frozen, it makes no sense to use the currencies of these
countries.

In fact, what’s going on, what’s already happened? We supplied European consumers with our resources, in this
case gas, and they received it, paid us in euros, which they then froze themselves. In this regard, there is
every reason to believe that we have supplied part of the gas supplied to Europe virtually free of charge.

This, of course, cannot continue. Moreover, in the case of further gas supplies and their payment under the traditional
scheme, new financial revenues in euros or dollars can also be blocked. Such a development of the situation is quite
expected, especially since some politicians in the West talk about it, speak publicly. Moreover, it is in this vein that the
heads of government of the EU countries speak. The risks of the current state of affairs are, of course, unacceptable
for us.

Just three days after that, Russia warned western policymakers that the new “ruble-for-gas scheme” was the prototype of
the new system as a result of US sanctions on Russian Central Bank FX reserves:

Kremlin warns West: Ruble-for-gas scheme is the ‘prototype’ – 4/3/22

Kremlin warns West: rouble-for-gas scheme is the 'prototype' | Reuters

President Vladimir Putin's rouble payment scheme for natural gas is the prototype that the world's largest country will
extend to other major exports because the West has sealed the decline of the U.S. dollar by freezing Russian assets,
the Kremlin said.

20 • FFTT TREE RINGS JULY 1, 2022

 Russia's economy is facing the gravest crisis since the 1991 collapse of the Soviet Union after the United States and
its allies imposed crippling sanctions due to Putin's Feb. 24 invasion of Ukraine.

Putin's main economic response so far was an order on March 23 for Russian gas exports to be paid in roubles,
however the scheme allows purchasers to pay in the contracted currency which is then exchanged into roubles by
Gazprombank.

"It is the prototype of the system," Kremlin spokesman Dmitry Peskov told Russia's Channel One state television
about the rouble for gas payment system. "I have no doubt that it will be extended to new groups of goods," Peskov
said. He gave no time frame for such a move.

Peskov said that the West's decision to freeze $300 billion of the central bank's reserves was a "robbery" that would
have already accelerated a move away from reliance on the U.S. dollar and the euro as global reserve currencies.

The Kremlin, he said, wanted a new system to replace the contours of the Bretton Woods financial architecture
established by the Western powers in 1944.

"It is obvious that - even if this is currently a distant prospect - that we will come to some new system - different from
the Bretton Woods system," Peskov said.

The West's sanctions on Russia, he said, had "accelerated the erosion of confidence in the dollar and euro."

Russian officials have repeatedly said the West's attempt to isolate one of the world's biggest producers of natural
resources is an irrational act that will lead to soaring prices for consumers and tip Europe and the United States into
recession.

And then, just five days after that, the Russian Central Bank put out a tersely-worded press release noting that from April
8, 2022, the Russian Central Bank would no longer buy gold at the fixed price of 5,000 RUB/gram, but rather, at a
“negotiated price”:

From April 8, 2022, the Russian Central Bank will buy gold at a negotiated price – 4/7/22
Changes in pricing policy when Bank of Russia buys gold in domestic market | Bank of Russia (cbr.ru)

FFTT TREE RINGS JULY 1, 2022 • 21

As we wrote in the April 8th, 2022 Tree Rings: These potentially monumental implications of the Russian announcements
of late March and early April are easier to see if we take two simple steps:

1. If we compare the amount of Russian energy the EU is importing (~$110B at year-end 2021, closer to $150B at
current prices, below) to the amount of Russian ruble reserves held by the EU (de minimis), we can only conclude
that the “ruble-for-gas (and oil) scheme” could easily trigger a significant short squeeze on the RUB/USD
exchange rate (and that is before the scheme is widened to other goods, as the Kremlin said would happen):

2. Multiply 5,000 RUB per gram x 31.103 grams/ounce

x the RUB/USD exchange rate to see the implied
price of USD gold if/when Russia’s “ruble-for-gas
scheme” creates a short squeeze higher in the RUB
v. USD (right):

Once you see it this way, it is hard to unsee. Russia has

created the conditions for a massive short squeeze higher in
the RUB, and has also tied the price of RUB to gold such that
a spike in RUB will likely drive a spike in gold, which would
revalue massive Russian gold reserves significantly higher,
which would likely more than offset the loss of Russian FX
reserves seized by the US and EU two weeks ago.

By invading Ukraine, Putin appears to have goaded

western policymakers into a trap, and they fell for it.

Unless the US and EU can convince the EU to completely

stop importing Russian oil and gas (i.e., convince EU citizens
to collapse their economy and banking system, likely followed
shortly thereafter by the collapse of the US economy and
banking system), Russia appears to have western policymakers in checkmate.

22 • FFTT TREE RINGS JULY 1, 2022

What are the actual mechanics for driving gold higher as the RUB goes higher? In our view, there are a couple ways:

1. If the EU needs to buy RUB in order to buy Russian energy, one way to do so would be to buy gold on the open
market, and sell it to the Russian Central Bank at the 5,000 RUB per gram fixed price. News of the EU openly
bidding for physical gold in order to acquire the RUB needed to import energy to prevent the collapse of the EU
economy would likely send gold markets sharply higher.

a. Given the highly-levered nature of London paper gold markets and the EU’s ongoing need to import
Russian energy, what is now effectively a gas-for-gold scheme could easily create an LME nickel-like
short squeeze in gold markets [this is where the “Holy Moly” gold derivatives chart gets interesting.]

2. Once the domestic Russian gold price is above the London/New York gold price (i.e., once the “rubles-for-gas
scheme” has short-squeezed the RUB high enough), a risk-free arbitrage will open where the world will be able to
buy physical gold from LBMA and COMEX vaults and sell it to non-sanctioned Russian banks to receive the
higher price of gold.

a. While western banks may not partake in such an arbitrage, we would suspect that major energy importers
such as China and India will be more than willing to do so in order to get cheap energy they desperately
need.

How can the EU and US get out of the “trap” we referenced earlier? There would appear to be three ways, all of which
are either highly unlikely or highly economically-unpleasant (i.e., note that the ensuing economic chaos and likely resulting
debt defaults would likely also be good for gold, and therefore good for the value of gold reserves like Russia’s):

1. Completely stop all global purchases of Russian oil and gas and metals (difficult if China, India, & Japan don’t
play along, which they likely won’t because stopping Russian oil and gas would likely collapse the global
economy.)

2. Sanction all global gold flows (this would amount to the US and EU putting on capital controls, and again, unlikely
to be abided by China, India, and others.)

3. End all sanctions on Russia (i.e., admit defeat in the currency war), and hope that Russia and the world forgive
and forget the FX reserves sanctions (in our view, that Pandora’s Box of FX reserves sanctions cannot be re-
closed.)

In the intervening three months since we wrote the preceding, we have seen the RUB/USD go from trading at 76 to
trading at 52 (a MASSIVE move higher).

We have also seen the EU, the US government, and the Fed (through monetary policy) seemingly attempt to collapse the
global economy via policy (a.k.a. pursue option #1 above):

Germans told to conserve energy as Russia cuts gas

flows to Europe – 6/18/22
https://www.ft.com/content/9cdd8457-0e5a-4452-af3e-
9df7107fd128

And this week, we had the US and G-7 seemingly attempt

to purse option #2 above as well (right and below):

EU IS WORKING ON NEW SANCTIONS TO TARGET

RUSSIAN GOLD: SOURCES – Bloomberg, 7/1/22 (via
MW & DC)
FFTT TREE RINGS JULY 1, 2022 • 23
In the same way that none of what the BOJ or EU and ECB
are doing in FX markets and sovereign debt markets is going
to matter until it matters, what appears to be happening in
gold markets likely will also not matter until it matters…but
tying gold to energy will likely make it “matter” much faster...

…especially since it seems perhaps Russia is not the only

energy exporter tying energy to gold (right, via DM):

This movement of gold back into the system as a settlement

asset for energy and other commodities is being discussed by numerous “serious people”, but is not yet being widely
discussed by mainstream western financial media or western financial consensus…

The world economy is experiencing a global tectonic shift, with commodities becoming more valuable than money, the head of
Russia’s state energy giant Gazprom, Alexey Miller, said on Thursday, adding that from now on it is a case of “our product, our
rules.”

“The game of nominal value of money is over, as this system does not allow to control the supply of resources,” Miller said
during a panel discussion at the St Petersburg International Economic Forum on Thursday. “Our product, our rules. We don’t
play by the rules we didn’t create,” he added.

Gazprom: Russian gas boss says ‘our product, our rules’ in supply row – 6/16/22
Gazprom: Russian gas boss says 'our product, our rules' in supply row - BBC News

“Our product, our rules”: Russia’s Gazprom – 6/16/22

‘Our product, our rules’ – Russia's Gazprom — RT Business News

Instead of a Volcker moment, we got a Putin moment and we basically have war and out of this war, something will also
emerge. Out of this, I think this “Bretton Woods III” that I started to kind of develop and run with, is a world where we are,
again, going to go back to commodity-backed money – where gold, once again, is going to play a big role. And not just gold,
but I think all forms of commodities.
-Zoltan Pozsar, Credit Suisse, 4/7/22

Foreign cargo used to be priced in U.S. dollars (or in the case of gas, euros), but now the ultimate sources of foreign cargo
(foreign nations) are changing the form of payment they demand and prefer: Russia is now invoicing its commodity exports to
“non-friendly” nations in ruble, not U.S. dollars or euros, and Saudi Arabia is open to China paying for oil in renminbi. It used to
be as simple as “our currency, your problem”. Now it’s “our commodity, your problem”.
-Zoltan Pozsar, Credit Suisse, 3/31/22, via Twitter

…but perhaps Jay Powell and other US officials are getting the sense that may begin to change in the foreseeable future:

Looking forward, rapid changes are taking place in the global monetary system that may affect the international role of the
dollar in the future. -Fed Chairman Jerome Powell, 6/17/22

Gold continues to be a core holding of ours, one whose price we really do not pay that close of attention to, because it sits
at the nexus of Peak Cheap Energy (as a neutral reserve asset) and the Fed “doing its #1 job” (making Treasury look
solvent.) Neither of these key factors will likely matter much to gold’s price…until they matter. When they matter, our
view is we may see an outsized move higher in the price of gold in a very compressed time frame. Let’s watch.

Thank you for reading this edition of Tree Rings. REMINDER: We will NOT be publishing next week for the US July 4th
holiday. We will return to our normal production schedule on July 15, 2022. Have a great weekend! LG

24 • FFTT TREE RINGS JULY 1, 2022

© Copyright 2022, FFTT LLC.

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FFTT TREE RINGS JULY 1, 2022 • 25